The Pakistan Credit Rating Agency Limited
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Muhammad Noor Ul Haq

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PACRA Maintains Entity Ratings of NRSP Microfinance Bank Limited

Rating Type Entity
(23-Oct-20 )
(27-Apr-20 )
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Stable Negative
Rating Watch Yes Yes

The ratings incorporate the bank's placement in the Microfinance Sector, as witnessed from its ~9% share in the gross loan portfolio (GLP) and ~10% share in the deposits of the industry. The design of the lending book keeps the concentration high wherein a considerable portion is dedicated to crop-linked loans, particularly to sugarcane crops; this, coupled with volatile system indicators, has significantly impacted the bank's credit quality in the last few years. This resulted in a considerable rise in infection ratio and a sizable quantum of write-offs in order to cleanse the loan book which has been achieved to a large extent. The management is eyeing no significant increase in NPLs in the medium term. Volumetric rise in lending book resulted in higher revenue earned. During 6MCY20, the bank witnessed good growth in profitability (Pre-Tax 9MCY20 profit: PKR 710mln, 9MCY19 loss: PKR 753mln). This along with presence of healthy investment book provides comfort. Considering the constrained market conditions due to COVID-19 pandemic outbreak and the bank’s internal factors, the management's strategic focus inclines towards consolidating the bank's position in the short horizon, including exercising a cautious lending approach and building gradual product diversity. The Bank's CAR witnessed slight uptick (Sep-20: 15.71%, Dec-19: 15.4%). The management is actively pursuing actions to address strengthening of CAR which are at an advanced stage. Stable outlook incorporates enhanced pre-provision profitability, quantum of highly liquid investment book and plan of strengthening CAR over short horizon. The ratings are placed under “Watch” particularly to reflect on the challenges arising from COVID-19 outbreak and subdued economic activity. Though SBP’s Relief Packages have come handy to the sector in protecting the credit quality of the players, the out-turn of the situation, and its relative impact on the risk profiles of industry players, is yet to unfold in the days to come. The ratings, however, take comfort from the association of NRSP Microfinance Bank with the National Rural Support Programme, the major shareholder, and with the three foreign development organizations - IFC, Acumen, and KfW. The major sponsor has expressed explicit intention to support the bank in case there is a need for capital injection.
The ratings are dependent upon the bank’s ability to aptly combat the emerging risks under the current scenario in order to keep its business and financial risk profile intact. Meanwhile, any further contraction in net liquidity book or erosion in CAR would have a negative impact on the ratings.

About the Entity
NRSP Microfinance Bank Limited commenced operations in March 2011, as a national level microfinance bank. The bank is majority (~52%) owned by the National Rural Support Program. Kreditanstalt für Wiederaufbau (KfW), International Finance Corporation (IFC), and Acumen each have ~16% shareholding in the bank. With a network of 154 branches, the bank has its head office in Bahawalpur, a key district in Southern Punjab; placing it closer to its target market.

The bank's Board of Directors comprises; 3 representatives from NRSP, 1 nominee each from IFC, KfW, and Acumen, 2 independent directors and the CEO - Mr. Zahoor Hussain Khan, an experienced microfinance banker. He is assisted by a qualified management team.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.